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Japan Big Manufacturers' First-Quarter Sentiment Worsens

Big Japanese manufacturers were less confident about business conditions in the three months to March, a government survey showed on Thursday, prompting concern about the continuing strength of the current economic recovery.

The data suggest the Bank of Japan's closely watched tankan quarterly business sentiment survey, due out on April 2, may show a slight deterioration in large manufacturers' sentiment, analysts said.

But in a positive sign for the corporate-sector, Japan's trade surplus unexpectedly rose in February from a year earlier on continued firmness in export growth.

Both indicators are unlikely to change the dominant market view that the Bank of Japan will go slow on any future rate hikes, after having raised its key policy rate in February.

The business survey index on sentiment (BSI) at large manufacturers in the January-March quarter fell to plus 0.1 from plus 7.1 in October-December, according to a joint survey by the Ministry of Finance and the Economic and Social Research Institute, an arm of the Cabinet Office.

Responses on the outlook for the coming months showed the BSI for big manufacturers at plus 4.1 for April-June and plus 11.8 for July-September.

"Corporate earnings remain firm, but business sentiment may have been hurt somewhat by uncertainty over the U.S. economy, a slight rise in the yen during the period and a temporary adjustment in global stock markets," said Noriaki Haseyama, an economist at Dai-ichi Life Research Institute.

The index measures the percentage of firms that expect business conditions to improve minus those that expect them to worsen.

Financial markets did not react much to the data.

The MOF survey also showed that firms see capital spending falling 5.3% in the next fiscal year starting on April 1, but recurring profit growing 6.2%.

Separate data released by the MOF showed that Japan's trade surplus rose 7.7% in February from a year earlier to 979.6 billion yen ($8.34 billion).

That compared with a market consensus forecast for a 26.1% decline, with exports growing stronger than expected on robust overseas demand for automobiles, steel goods and electronic parts, the data showed.

Exports rose 9.7% from a year earlier, against a market forecast of a 6.2% increase, while imports were up 10.1%.

The BOJ kept its key overnight call rate target unchanged at 0.5% in a two-day policy meeting that ended on Tuesday, as widely expected by markets.

The central bank raised the key rate target by a quarter percentage point at last month's policy meeting, which was the first rate rise since July last year.

Japan is currently enjoying its longest period of expansion in the postwar era, albeit at a slower pace than in previous booms, on the back of solid exports and robust corporate capital spending.